No.13 (August 15, 2019)
Market Industry Trends
ILO: Cambodia’s footwear sector ripe for investment. Cambodia’s footwear sector will provide more opportunities for investment and production than the garment sector due to significant growth over the last five years, said an International Labour Organisation (ILO) research bulletin on Cambodia’s garment, textile, and footwear (GTF) industry. The bulletin said the footwear sector has grown more rapidly than the garment sector in recent years, adding Cambodia to the list of top 10 footwear export countries in 2016 for the first time. Between 2013 and last year, it said, the footwear sector’s share in Cambodia’s total GTF export value has grown by 4.4% point, while the garment sector’s share has decreased by almost 10% point. Though the global export value of footwear declined between 2015 and 2017, it said, production in the Kingdom increased steadily at an annual average of 27% during the same period. The Kingdom remained in the top 10 footwear exporters, with its exports valued at more than $1 billion last year, a 19% increase from 2017. Cambodia’s main export markets for shoes are the EU (46%), the US (17%), Japan (12%) and Canada (5%). The UK, Germany, and France are the main importers of the Kingdom’s footwear in the EU. (Phnom Penh Post).
New Rice Federation President Says He Will Make Export Push. Cambodia’s rice exports have seemingly reached their peak, as annual exports have failed to reach government targets for the last few years. In early August, the Cambodia Rice Federation (CRF), one of the leading institutions for promoting the industry, elected Song Saran, the CEO of Amru Rice (Cambodia) Co Ltd – a major rice processing and export company – as its new president. Saran has been involved in the industry since 2011, through the establishment of Amru Rice. In an interview with The Post, Saran said one of the first things he will do as president is to train farmers, whom he called “the foundation” of the industry. “The first thing I would like to do is promote market connectivity for farmers through contract farming, and reduce production costs by encouraging the use of seeds. “We want to implement a principle [for millers] on using their cash flow to buy rice [directly] from farmers during the harvest season. “We’ll explain to millers how to manage their cash flow and expenditure, and prepare their taxes and other paperwork to develop into standard [institutions], which will simplify [the process] when they need loans for investments,” said Saran. He said issues facing the Kingdom’s warehouses and drying silos cannot be overlooked and logistics development needs to be improved for competitiveness. (Phnom Penh Post).
Taiwan curtain producer plan to move to the Kingdom from China. Leading Taiwan-based curtain manufacturer and seller Nien Made Enterprise Co Ltd has revealed plans to expand in Cambodia to avoid the fallout from the Sino-US trade war, the Taipei Times reported on Saturday. Nien Made Enterprise currently operates a window blinds factory in Cambodia. Currently, about one-third of the company’s ready-made products, such as blinds, are made in China, but it plans to gradually shift the bulk of its operations to Cambodia over the next few years. Nien Made Enterprise Co Ltd. A Nien Made Enterprise public relations officer told the Times that the firm will expand its production line in Southeast Asia and will shift orders for finished products from China to Cambodia to avoid the risk of US tariffs. (Phnom Penh Post).
Vietnam’s banks keen on green projects. Green credit is a trend in the global banking and finance industry and more Vietnamese banks are following suit. The State Bank of Vietnam (SBV)’s latest survey of credit institutions (CIs) in the field of green growth and green credit released recently showed that the awareness of CIs on green credit has improved significantly. Specifically, 19 CIs have developed strategies for environmental and social risk management while 13 CIs have integrated the content of environmental and social risk management in the process of the green credit assessment. Ten CIs have built credit products and banking services for green sectors and have shown an interest in providing credit for these sectors, mainly in the medium and long term with preferential interest rates for green projects. However, the SBV’s statistics also showed that funding for green projects remained restricted, with only 24% of green projects developed by the banks for the credit appraisal process. (Phnom Penh Post).
More cargos needed to fill Lao-Thai freight train. A newly launched Lao-Thai transit freight train service requires more cargo shipments to be successful. The train can carry 10 to 20 containers in and out of Laos, but it appears that the number of exporters is smaller than that of importers. This is a problem that the parties involved must address by working together. The president of the International Transport Association under the Lao National Chamber of Commerce and Industry, Pachit Xayavong, told Vientiane Times: “Having the freight train service is good. Transport costs will be lower because companies can export more goods at the same time, but this service must have a lot of goods for two-way shipments.” The governments of Laos and Thailand launched the freight train service across the first Lao-Thai Friendship Bridge on August 1 to facilitate the business sector and boost economic cooperation. Lao products are shipped to Laem Chabang port in Thailand for onward supply to Thai markets or export to other regions. An official responsible for the container yard belonging to the Lao Logistics State Enterprise on Monday said the imbalance in shipments entering and leaving Laos is an issue that needs to be addressed by stakeholders. A lot of goods are being brought into Laos, but little is being sent out of the country. These circumstances might impact the freight business, said the official. But he was optimistic Laos will be able to export more products by freight train in the future. (Phnom Penh Post).
Market Deals
Organic co-ops sign on for contract farming. Six rice agricultural cooperatives signed an agreement on “contract farming” with the Cambodian Agriculture Cooperative Cooperation (CACC) to help organic farmers overcome market limitations. CACC representative Kann Kunthy said he wants to see the Kingdom’s agricultural market improve by promoting organic crops, which have seen an increase in demand. “Through this contract, the community will see some key benefits, such as a market price of between 20-40% [higher than normal crops], the provision of good seeds and other marketing guarantees,” he said. The CACC is a subsidiary of Amru Rice (Cambodia) Co Ltd, a major local rice processor, and exporter. Since its launch in 2017, the CACC has signed “contract farming” agreements with eight rice cooperatives, 10 cassava communities, seven cashew communities, and two pepper communities.(Phnom Penh Post).
Ly Ly Food Industry launches $16M second cracker factory. Ly Ly Kameda Co Ltd, a joint venture between local company Ly Ly Food Industry Co Ltd and Japanese firm Kameda Seika Co Ltd, was officially launched. The $16 million factory, which can produce more than 3,000 tonnes of crackers annually for export, is 49% owned by Ly Ly Food Industry and 51% by Kameda Seika. It employs about 250 workers. Ly Ly Food Industry CEO Keo Mom said the launch of its second cracker factory was a large step for the local firm, as orders continued to grow. “We plan to expand in the coming years as the market continues to gain greater interest,” She said the newly launched factory is equipped with advanced technology and has passed safety and hygiene inspections. Its raw materials are almost exclusively local and its products will all be exported. The plant began trial production in January, exporting one container daily to Australia and New Zealand. Ly Ly Food Industry’s first factory also has a production capacity of more than 3,000 tonnes a year, about 65% of the factory’s products are sold locally while the remaining 35% is exported. The firm is currently seeking more markets in countries such as China, the US, and Canada. (Phnom Penh Post).
ABC inks Visa EMV chip deal. The Association of Banks in Cambodia (ABC) signed an agreement with Visa Inc to provide Visa EMV chips to its member banks and ensure the security of customers’ transactions. In the Kingdom, Visa EMV chips were previously used exclusively at Acleda Bank Plc. Speaking during the signing ceremony, Visa Country Manager for Cambodia Chum Monika said using EMV chip standards would offer local banks and microfinance institutions the highest security for their users. The EMV chip is embedded with microprocessor technology which creates a new transaction code every time the card is used. “As digital payments grow, we are committed to ensuring Cambodians are protected when they make transactions. “Making Visa’s EMV chip standards available to local banks and microfinance deposit-taking institutions will benefit the entire industry,” said Monika. (Phnom Penh Post).
2C2P unveils easy-to-use cross-border remittance service. 2C2P (Cash and Card Payment Processor) is launching “easy2send” – a cross-border money transfer service in collaboration with local and international partners. The Thai subsidiary of Singapore-headquartered payment service firm 2C2P is launching “easy2send” – a cross-border money transfer service in collaboration with local and international partners. Easy2send allows cross-border transactions from Thailand to any country and vice versa. This service is governed under the remittance license from the Bank of Thailand. Users can make remittance requests at more than 10,000 payment outlets, with fees starting from as low as 99 baht ($3.21), and intended recipients will receive their money in real-time. Thailand is home to more than 2.1 million foreign workers and over 90% of them are Myanmar, Lao, and Cambodian nationals. (Phnom Penh Post).
Macro-economy
Cambodia-Japan bilateral trade reaches $1B in H1. Bilateral trade between Cambodia and Japan reached more than $1 billion in the first half of this year, up 16% year-on-year, according to data from the Japan External Trade Organisation (Jetro). Cambodia’s exports to Japan in the first half of this year grew 12% year-on-year to more than $792 million, as imports grew 34% year-on-year to $256 million, the data showed. Two-way trade between the two countries in the first six months of last year reached $897 million, with the Kingdom’s exports at more than $706 million and imports at $191 million. (Phnom Penh Post).
[Cambodian] Consumer credit hits $7B in Q2. The total outstanding balance of consumer credit in Cambodia continued to steadily increase, reaching $7.16 billion by the end of June – a 6.8% increase from the first quarter – according to a Credit Bureau Cambodia (CBC) report released recently. The number of consumer loan accounts increased by 5.03% quarter-on-quarter, bringing the total number of accounts to 1.19 million, equal to 37.67% of total individual accounts in the market. As of June, non-performing loans after 30 days (NPL 30) fell to 1.19% from 1.24% at the end of March. The $7.16 billion in outstanding consumer credit accounted for roughly 30.22% of the total outstanding balance of individual loans in the market. However, the report said, the number of customers applying for consumer credit in its three forms – personal finance, credit cards, and mortgages – all dropped 19.29%. The report said the biggest drop was in mortgage applications, which fell by 36% quarter-on-quarter, with the coastal regions seeing the sharpest drop at 49%. (Phnom Penh Post).
Laos to issue a bond to tackle fiscal deficit. The Lao government plans to sell more domestic bonds in the local currency in an attempt to address the fiscal deficit and strengthen the national capital market. Over the past five months of this year, the government has sold 1.13 trillion kips ($130 million) worth of domestic bonds, equal to 28.89% of the amount targeted in the plan for this year, according to a recent report from the Ministry of Finance. The bonds were issued through the Lao Securities Exchange and the Bank of the Lao PDR with an interest rate of 5% for the one-year bond, 5.5% for the two-year bond and 6% for the three-year bond. The government has recognized the potential to mobilize funding from domestic sources, particularly by issuing bonds through the Lao Securities Exchange targeting investors and individuals. (Phnom Penh Post).
Maybank: China’s BRI Investment Jumps in SE Aisa. While geopolitical conditions have not improved much this year, the analysts noted a jump in Chinese investments in the region. Chinese investment and construction contracts in Southeast Asia nearly doubled to $11 billion in H1 of 2019, from $5.6 billion in H2 of 2018. The new BRI contracts for the past six months are largely in Cambodia, Indonesia, Singapore and Vietnam, and primarily for transport and energy projects. “ASEAN will likely see a stronger recovery in China’s BRI flows, as other regions push back against China investments,” the analysts added. In contrast, Malaysia, which used to attract the largest BRI flows, has not seen a recovery. Still, it remains the largest recipient of cumulative BRI contracts since 2013, followed by Indonesia and Singapore. The report noted that Malaysia’s new government recently re-negotiated and revived the East Coast Rail Link and Bandar Malaysia projects, which may restart investment flows. The Sino-US trade war is also fuelling the flow of Chinese investments into Southeast Asia as firms move parts of their supply chains to the region to circumvent the higher US tariffs. Maybank analysts say the beneficiaries appear to be Vietnam, Thailand, and Malaysia. Total newly registered foreign direct investment from both China and Hong Kong into Vietnam surged by 200% in the first seven months of this year. Notably, GoerTek, one of Apple’s main contract manufacturers, has invested $260 million to set up a plant in Vietnam to make the popular AirPods wireless earbuds. Tech and the digital economy form another area that is drawing Chinese money into the region said the Maybank report. China Global Investment Tracker noted that Chinese investment in Southeast Asia’s tech sector hit $2.5 billion in the first half of this year, surpassing the amount for the whole of 2017. Maybank analysts expect more of China’s tech money will be diverted into Asean, given US moves to raise barriers and increase scrutiny of Chinese tech investment. They noted that China’s venture capital investment in ASEAN start-ups rose more than fourfold to $667 million in the first half of this year. And the biggest Chinese venture capital firms such as Qiming Ventures and CGV Capital – backed by Alibaba, Xiaomi and Meituan-Dianping – are also opening offices in Singapore. The development and roll-out of 5G mobile networks in Southeast Asia will also see Chinese investments flowing into the region, as ASEAN is generally staying neutral and open to using Chinese telecoms equipment giant Huawei’s technologies, the analysts added. (Phnom Penh Post).
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